They're Just Desserts

(Sunday, May 05, 2002) - They're Just Desserts

Shake, shake, shake it up.

The family behind Shake's Frozen Custard is doing just that in the frozen dessert business.

In less than 12 years, the company has moved from a one-store operation in Joplin, MO., to 28 stores and another 30 under construction or development.

And the Osborne Family isn't stopping with locations in eight states.

"Our growth plan is to grow concentrically out of Northwest Arkansas. Something like a 'bull's eye' effect," said Corey Osborne, president and chief executive officer of Shake's, formerly known as Shakey's.

The company changed its name last year to Shake's-Califoria-based Shakey's Pizza & Buffet restaurant already held the federal trademark to the name Shakey's-in its quest to expand nationally.

"We realized that, in an effort to grow the brand, we needed that circle R," he said.

Osborne, 31, plans to grow southwest once the Southern states are covered, and after five years go into Mexico, then northward into Canada.

Already, Shake's shops dot the landscape of Arkansas, Missouri, Oklahoma, Kansas, Texas, Tennessee, Florida, and Alabama.

"As we grow South, some people tend to equate custard with custard pie," Osborne said of the company's biggest challenge. "They don't think of it as premium ice cream. All we ask is you sample it one time and then make your decision."

Shake's is riding the wave of consumers more interested in taste than fat content. Although Shake's custard products are 90 percent fat-free, competitors such as TCBY frozen yogurts are 99 percent fat-free. But consumers don't seem to care.

"In the last five or so years, consumers have been gravitating toward the higher-fat content frozen desserts, especially super premium ice creams and the frozen custards," said David Landau, spokesman for International Dairy Foods Association in Washington. "The lower fat and fat-free varieties of frozen yogurts and ice creams just aren't faring as well. Consumers generally turn to ice cream as an indulgent treat. The more fat in the product, the better the taste."

The future of Shake's, which reported $11 million in sales last year, seems so solid that it persuaded the company's former banker to join as chief financial officer.

Company-owned stores average annual sales of $530,000 last year, said John Harrell, a banker for 17 years. The company expects to increase sales to $625,000 this year with more investors opening up franchises, he said.

Harrell, then with Arvest Bank in Joplin, learned of the frozen custard business when Shake's founders Don and Debbie Osborne came in for a loan to open the first store. He has handled their banking business ever since, until the company persuaded Harrell to cross over.

"This business has the greatest potential of any I've ever seen," he said.

SHAKE, RATTLE AND ROLL

Shake's didn't start out with the intention of competing on a national level.

The company's story starts humbly, with Don and Debbie Osborne looking for a business while both held other jobs. After trying frozen custard at a scoop shop in Springfield, Mo., they were hooked.

"We decided to try to do it in Joplin since no one down here knew what custard was," Don Osborne said. "We were able to get our loan and found some equipment for sale in St. Louis."

On the drive home, the two mapped out their future business, with Debbie planning the restaurant's motif and menu based on early rock'n'roll songs.

She fancied sundaes named The Big Bopper, Teddy Bear, Blueberry Hill, and Love Potion No. 9-all items on the Shake's menu.

In 1991, after two months of scrubbing and remodeling, the couple "opened our doors to a grand total of about four people," Don Osborne said. "People in this area did not know what frozen custard was. We battled and educated them for about three years until we came on a recipe that we liked and what you enjoy today."

Shake's changed the recipe once a year before it found success through an extra ingredient added "by accident," Osborne says. But the product's popularity has startled even them.

"My wife and I really were surprised to see it go this far. When you grow up hard, you can't believe things happen to you the way they do," he said. "People come see us even in the dead of winter."

SHAKE IT UP

Although Don and Debbie Osborne were content with their business, Don's son, Corey Osborne, had other ideas.

Corey, who graduated from the University of Arkansas, opened the second Shake's in 1997 in Fayetteville.

A year later, he persuaded his parents to begin licensing franchisees. The company operates a restaurant in Joplin and two in Fayetteville, while the rest are franchised.

In April 2001, Corey Osborne moved the corporate headquarters to Fayetteville from Joplin. He also recruited his two brothers to work at the office and looked for executives to help lead the company.

Jim Buckner, executive vice president, brings years of experience in the frozen dessert business as a former executives with Little Rock-based TCBY Enterprises.

"What we're trying to do is somewhat model our growth on what we did with TCBY," Buckner said. TCBY was sold in 2000 to Capricorn Investors III, a privately held investment firm that owns several cookie and pretzel brands.

TCBY, which stands for This Can't Be Yogurt (later trademarked The Country's Best Yogurt), started after founder Frank Hickingbotham's wife, Georgia, Talked him into trying frozen yogurt and said, "This can't be yogurt."

From there, he found the manufacturer, secured the rights to distribute the product and opened the first store in 1981 in Little Rock. By the second year, the company began franchising. Before its sale, TCBY Enterprises had more than 3,000 locations and sales of $109 million.

Buckner said Shake's is taking methods that TCBY did right, and "we put of Shake's twist to that and grow franchises with that model."

Shake's is sticking to its plan to grow slowly regionally before branching out.

"It would be real easy to be tempted to grow outside of that zone," Buckner said. "There are people all over the United States interested, but for us to support the franchises, we want our distributors to be close to it."

The depth of interest in a Shake's franchise--costs range from $166,000 to $800,000 for the franchising fee, equipment, construction and land costs-was demonstrated in April at the International Franchise Expo in New Orleans. More than 80 investors requested information about available franchise territories, Buckner said.

The company receives a 5 percent royalty fee from franchisees, Harrell said.

Shake's new prototype for stroes hit the Springdale market in April. Older stores operated in converted buildings or in convenience stores. The new style does not include inside seating, which slows traffic.

Franchisees Jerry and Robbie Horton moved their Shake's shop in April from a convenience store to a stand-alone building in Springdale. The new format features double drive-thru lanes and double take-out windows.

Sales have doubled since the move, Jerry Horton said.

The Hortons, who own Summit Flooring and Interiors in Springdale, also own Shake's stores in Rogers and Stillwater, Okla.

Sales at the company-owned Joplin store, the first to replace the original store format, increased more than 30 percent under the new format, Buckner said. Horton said his biggest challenge remains getting potential customers to try the product.

To attract new customers, owners of the Northwest Arkansas stores plan to pool their resources for cooperative advertising, he said.

Brandon Barber, of Fayetteville, now an employee at Community Bank, saw Shake's potential early on, when he was a UA student.

"This is just the ground floor," he said of getting into the business in 1999.

Barber gained the rights to stores in several markets, including Fort Smith, Texarkana, Memphis, and Dallas. He plans to put about either stores just in the Dallas area.

Barber already operates Shake's outlets in Bryant, Benton, Texarkana, and a Memphis suburb. The Fort Smith store will open by July, and the first Dallas store should open by the end of the year.

"We do an enormous volume," Barber said. "When you drive by the Fayetteville store and there is ice on the ground and it's snowing and you see three or four cars on both sides, you know you've got a good product."

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